JOHANNESBURG (miningweekly.com) – Platinum miner Lonmin would invest over $2-billion to grow its production over the next five years, which will include an expansion at its Marikana operations to 950 000 oz/y by 2015, CEO Ian Farmer announced on Monday.

The $2-billion capital expenditure (capex) for the period 2011 to 2016, would see about $1,3-billion spent on larger projects, with the remaining $700-million for minor replacement projects.

The company increased its estimated capex for 2011 by $20-million to $400-million, in light of the continued strength of the rand. Some $154-million has already been spent.

Farmer told Mining Weekly Online that the capex spend was also in line with increasing the company’s platinum ounce profile to 950 000 oz by 2015. “We roughly expect a 50 000 oz/y growth from 2011 up to 2015.”

He added that the increased production would help control unit costs. “It is helpful if one can get more throughput from an existing fixed-cost infrastructure.”

Farmer said the Marikana asset had been identified as providing the most efficient growth, given its considerable resources and reserves and the company’s ability to leverage the existing infrastructure and management skills.

“A team looked into long-term planning and various scenarios and degrees of speed and aggression of achieving growth and it was decided that the right approach for business was achieving 950 000 oz by 2015 with a 50 000 oz/y incremental growth. This was based on an improving market situation and allows Lonmin to keep its capital profile manageable and moderate over the period,” Farmer explained.

Most of the capex spend over the next five years would be used to “aggressively” grow Lonmin’s shaft complexes. “We have a number of new shafts and the money will be used to accelerate the bulk of our new shafts.”

Commenting on the platinum-group metals (PGM) outlook, Farmer believed the market would enter a period of deficit from 2012 to 2014.

Platinum registered a surplus of almost one-million ounces in 2010, and is expected to remain in surplus for a seventh consecutive year in 2011, according to precious metals consultancy GFMS. Sister metal palladium recorded a 550 000 oz deficit last year and would descend into a “large” deficit this year, the precious metals consultancy said last week.

Primary demand, Farmer said, would be from the automotive industry, which has been recovering steadily over the past few years. The sustained recovery of automotive and industrial demand drove the improvement in platinum and palladium prices, which increased by 19% and 89% respectively, in the six-month period ended March 31.

“Emission control strategies, such as Tier 4 emission legislation in the US, continue to roll out to capture more vehicle types and geography and the combination of vehicle units and emission control legislation is a good formulae for the PGM market. Supply will continue to lag behind demand, primarily owing to the number of investments over the past few years. Currently, we are not seeing the inducement pricing that many projects need,” he said.

The recovery in automotive demand continued despite the recent earthquake in Japan. Growth in the US automotive demand has been accelerating owing to pent-up consumer demand and improving access to credit. In Europe, France and Germany continued to show positive growth. Although, demand is contracting in the UK, Spain and Italy, automotive sales in Europe are stronger than expected.

This year, Farmer believed, would continue to “bump along”, but he remained optimistic that stronger markets would arise from 2012 onwards. “The world is an uncertain place and surprises are inevitable. One has to plan accordingly and this has also contributed to ensuring a strategy that grows the company and enables it to be more robust and resilient to those surprises.”

Meanwhile, despite solid progress in the company’s operational performance, the platinum miner has seen an increase in the number of fatalities at its operations − six deaths in the past seven months.

“There is no magic bullet for this situation, and this is a journey with no once-off solution,” Farmer said. He told Mining Weekly Online that the fatalities had been “something that worried him immensely” and that the company would be reviewing its safety approach.

“The review is not because we feel we were doing something wrong, but because we need to up our game. We are putting more energy behind our existing safety programmes, will bring in more horse power, focus on training dealing with behavioural issues and increase management capacity – there is no one quick fix,” he said.

Lonmin aimed to further decrease its lost-time injury rate from between 5% to 10% a year to 30% a year.

Commenting on the company’s appeal of the decision of the Department of Mineral Resources to issue  prospecting rights within the company's Rustenburg lease area to the Holgoun company, Keysha, headed by Sivi Gounden, Farmer said that despite no further updates on the issue, he would think that a decision would be imminent.

STICKING TO FY SALES TARGET

On Monday, Lonmin reported a 37,7% increase in March-quarter sales to 251 880 oz of platinum, with refined production increasing by 24,3% to 225 152 oz. Sales for the financial half-year rose by 9% to 318 306 oz and Farmer said that Lonmin remained on track to meet its full-year sales target of 750 000 oz of platinum.

Lonmin more than doubled its profit before tax to $159-million in the six months, from $77-million in the 2010 half year. Net operating profit rose to $144-million from $65-million, while net debt decreased from $375-million to $296-million.

Farmer concluded: “Operational performance is moving in the right direction and believe we are chipping away, doing the right things and getting the company to produce healthy operational results. I am reasonably pleased with that solid progress.”

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